I Am Truly Torn

I read with great interest a P&I article from last Friday that mentioned a group of retirement industry trade groups (roughly 25*) had sent a letter to Congress seeking immediate action to help employers that sponsor retirement programs, participants, and retirees during this unprecedented crisis. According to the article they were calling “for allowing penalty-free qualified distributions and loan modifications for individuals impacted by the coronavirus pandemic; providing a temporary waiver for calendar year 2020 of the rules for required minimum distributions from defined contribution plans and individual retirement accounts; assisting defined benefit plan sponsors by freezing the interest rate at pre-COVID-19 pandemic levels, and extending the final contribution due dates, among other suggestions.”

I am all for protecting the few remaining corporate DB pension plans, so whatever action needs to be taken to protect them I say, “let’s go for it!” But, I am much more concerned about the impact that this crisis is having on both current plan participants and retirees.

My anxiety has to do with these proposed short-term actions to help DC participants and retirees and whether or not they will lead to significantly greater issues in the future. I can’t begin to tell you how many articles/posts I’ve written regarding DC plans being nothing more than glorified savings accounts. Dire circumstances such as the present show that more clearly than ever.

Regrettably, there is no question that a significant percentage of Americans will be harmed by the sudden loss of their livelihoods. The financial impact will be devastating to so many; providing a little lifeline to those individuals that actually have some savings in a defined contribution plan may make all the difference in their ability to keep a roof over their head and food on their table. I get it! But, allowing the raiding of one’s retirement plan will likely sabotage them later in life. We need to make sure that any actions we take now are not setting us up for more pain down the road.

“Financial relief and support is critical as we work through this crisis,” said Tim Rouse, executive director at the SPARK Institute. “The retirement community stands ready to do its part. Really? Where were these groups when DB plans were being wiped away and the dream of a retirement for most Americans crushed?

We have had a slowly unfolding social crisis in our country for decades where a significant percentage of those working full-time barely earn enough to provide the very basics needed to live – our “working poor”. Adequately funding a DC retirement account is out of the question for many even in good times. What we need is real reform that once again provides the American worker with a professionally managed retirement program that can’t be accessed until retirement and is paid out in the form of a monthly annuity. This will then allow workers to use DC-like plans like the glorified savings account that they’ve become. We should allow for payroll withdrawals to fund these emergency accounts so that the financial burden from a crisis of this magnitude can be mitigated to a certain extent.

Let’s not muddy the waters here. We have a retirement crisis that will impact lives for generations which is separate from the immediate crisis that threatens both our economy and our broader way of life. Allowing participants to draw-down their scant retirement savings is not only robbing Peter to pay Paul, it’s robbing Peter and Paul to take out a contract on both of their lives.

We need an enormous Federal stimulus somewhere on the order of 15% to 25% of GDP (i.e. $3-5 trillion) that recognizes the existential threat to American families and immediately provides them with direct cash resources, debt forgiveness, and jobs guarantees in crucial industries to weather this storm. We also need the Senate to pass the Butch Lewis Act now. This loan program is needed now more than ever, as the market action of the past month has likely expedited the insolvency that has been predicted for many of these funds and that which jeopardizes the “golden years” for more than 1.4 million American workers and retirees.. No financial package should be passed without addressing the retirement crisis. Furthermore, we absolutely should not encourage American workers to mortgage their futures by borrowing from what little retirement savings we have.

*note: According to P&I, the groups that signed the letter to Congress were the SPARK Institute; American Benefits Council; American Council of Life Insurers; American Retirement Association; Association for Advanced Life Underwriting; Committee on Investment of Employee Benefit Assets; Defined Contribution Alternatives Association; ERISA Industry Committee; Financial Services Institute; Insured Retirement Institute; Investment Adviser Association; Investment Company Institute; National Association of Insurance and Financial Advisors; National Association of Manufacturers; NTCA-The Rural Broadband Association; Retirement Industry Trust Association; Retirement Industry Trust Association; Securities Industry and Financial Markets Association; Small Business Council of America; Small Business Legislative Council; and Stable Value Investment Association.

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